Demoralized Hedge Fund Trader Finds Success on Ancestor's Path

(Bloomberg) -- As he turned 40, Ken Shibusawa looked back on two decades working for Wall Street firms and wondered what he was doing with his life.

Questioning his career choice, the trader turned to the writings of his great-great grandfather, a pioneer of Japanese capitalism who founded the country's first bank and stock exchange after visiting Europe in the 1860s.

One teaching stood out: a fulfilling existence mixes business and virtue. For Shibusawa, that meant turning his back on the profit-obsessed dealing rooms of places like Goldman Sachs and Moore Capital Management, and eventually founding his own asset-management firm. His goal was to get Japanese savers to put money in stocks by offering them a low-cost, buy-and-hold investing option.

"I was a short-term guy, I was a trader," Shibusawa, now 55, said in an interview in Tokyo. "But I saw the necessity of a long-term perspective."

Shibusawa's now swapping out about one of the 30 companies in his fund a year. The rest of his time is mostly spent encouraging Japanese firms and their investors to communicate more.

Commons Asset Management has banded with two peers — Rheos Capital Works and Saison Asset Management — to push this approach, which they dub "herbivore investing." With most of Japan's $16.1 trillion household-savings pool held in bank accounts that pay virtually no interest, their vision is to get individuals to view the stock market as the best place to save for the future, and to propel the nation's economy by directing capital to its best companies.

There are signs the group is gaining traction. Shibusawa's Commons 30 is beating 88% of comparable funds over the past three years and trouncing Japan's benchmark Topix index, data compiled by Bloomberg show. While the investment firm's assets under management remain small at about $235 million, they've grown 29% in the past seven months. Rheos Capital just surpassed $2 billion.

"You can feel that bloodline," said Haruhiro Nakano, president of Saison Asset Management. "He could spend his days just being a layabout. He has the Shibusawa brand and fame, but he's put himself into this tough environment to make money in Japan flow in the right direction."

The key, Shibusawa says, is to find businesses that will still be growing a generation from now. While Commons 30 uses metrics like profitability and valuations to pick its stocks, it also focuses on whether a company is open with investors and has a good corporate culture.

Shibusawa says its concentrated holdings are less risky than they appear because most of the stocks are Japanese blue-chips, which other investors tend to buy on dips. They include cosmetics giant Shiseido and commodities trader Mitsubishi, which have risen this year even as the market tumbled. Both stocks slid in Tokyo trading on Wednesday.

In a sense, the fund has his great-great grandfather to thank for its creation.

When Eiichi Shibusawa traveled to the Paris World Fair in 1867, what he saw convinced him that feudal Japan needed to develop its industry and economy. He established First National Bank, the nation's first lender, and helped set up about 500 companies, including the Tokyo Stock Exchange. Eiichi is covered in some Japanese school textbooks and a museum dedicated to his life attracts tourists in Tokyo.

Ken Shibusawa says he's always been aware of his famous ancestor, but it took a midlife crisis to make him start looking into Eiichi's philosophies. When trying to work out what to do with his remaining years, Ken picked up a compilation of Eiichi's writings, and reading it helped him find the answer. He even went on to publish his own book about his forefather.

ELEPHANT, ANT

"It's like comparing an elephant to an ant," Shibusawa said when asked if his work today is similar to his great-great-grandpa's. But "I realized I was kind of doing the same thing. He basically said a bank is like a mighty river, and the money that doesn't gather at the bank is like tiny dew drops falling one by one, but if that dew drop gathers at a bank it eventually becomes a big river, and it has power to drive the economic growth of Japan."

If Eiichi's journey took him to Europe, Ken's sent him to Texas, where he spent most of his school years and did an undergraduate degree in engineering. He then changed direction and went to work at JPMorgan and Goldman Sachs, before becoming an execution trader on the night shift for Louis Bacon's Moore Capital. From 1997 to 2000 he headed Moore's Tokyo office.

"I was much more financially comfortable in my 20s and 30s," Shibusawa said. But "people in the financial services industry, somewhere in their hearts, there's a sort of empty space," he said. "They kind of feel, I think, probably trapped."

Now, far from the adrenaline-filled life of the trading floor, Shibusawa spends his days organizing events where his customers, who invest as little as 3,000 yen ($28) a month, can meet company executives and talk about everything from their business strategy to how they disclose information.

Some firms were reluctant to meet retail shareholders at first, but have come to see the benefit, he said. Commons even holds study groups with people from the 30 firms to work out how it should act as an investor. The company name is a reference to finding common ground between the groups.

Shibusawa is advocating a buy, hold and engage approach in a country where individuals have often been encouraged to shift between funds by brokers who want to generate trading commissions. Commons doesn't ask for a commission on inflows to the fund and charges a management fee of 1.15% a year, versus industry averages for comparable products of 2.6% and 1.4% respectively, data compiled by Bloomberg show.

While Shibusawa says his wife questions why he gave up a well-paying career on Wall Street, he has no regrets about his new life.

"I forgot to wear my green necktie today," he said, joking about his new-found focus on sustainability. But "that's us, man," he said.